Notes: FDR Presidents Herbert Hoover Franklin Delano Roosevelt Government/ Congress

(Benarke notes)

- Fed allowed prices actually to fall there was a period of deflation where prices were falling very
sharply which turned out to be a very negative thing for the economy so monetary policy was too
tight too long it was not supportive of the economy did not keep prices stable the way you know
we are mandated to do today the other mistake problem that the Federal Reserve made in the
1930s was that it didn't do enough to protect the stability of our financial system

- There was a global financial crisis in the late 20s and early 30s in the United States about a third
of all the banks thousands of banks in the United States failed they collapsed went bankrupt
people lost their money because we didn't have Deposit Insurance protecting people's deposits in
the banks the banks were not available to make loans and that collapse of the banking system was
a major factor explaining why the depression was as deep and as long as it was and it was very
very severe unemployment reached about 25 percent in 1932 and it was not until World War two
began in 1941 that the economy really began to fully recover
- An example of the former is the Fed’s decision to raise interest rates in 1928 and 1929. The Fed
did this in an attempt to limit speculation in securities markets. This action slowed economic
activity in the United States. Because the international gold standard linked interest rates and
monetary policies among participating nations, the Fed’s actions triggered recessions in nations
around the globe. The Fed repeated this mistake when responding to the international financial
crisis in the fall of 1931.
- Once the war began, governments wanted to print money quickly and exchange it for war
supplies. But convertibility allowed people to exchange the new money for gold at the
pre-established rate, which could drain national gold reserves. To avoid that problem, most
countries suspended conversion. The United States did not do so officially, but it discouraged
“patriotic Americans” from exchanging their dollars for gold and thus joined the rest of the world
in using the printing press to finance the war.

- The governors and the Board understood the need for coordination; frequently corresponded
concerning important issues; and established procedures and programs, such as the Open Market
Investment Committee, to institutionalize cooperation. When these efforts yielded consensus,
monetary policy could be swift and effective. But when the governors disagreed, districts could
and sometimes did pursue independent and occasionally contradictory courses of action.

- The governors disagreed on many issues, because at the time and for decades thereafter, experts
disagreed about the best course of action and even about the correct conceptual framework for
determining optimal policy.
- Congress passed a bill that paid commodity farmers (farmers who produced things like wheat,
dairy products, tobacco and corn) to leave their fields fallow in order to end agricultural surpluses
and boost prices.
- An example of the latter is the Fed’s failure to act as a lender of last resort during the banking
panics that began in the fall of 1930 and ended with the banking holiday in the winter of 1933.

- These differences of opinion contributed to the Federal Reserve’s most serious sin of omission:
failure to stem the decline in the supply of money. From the fall of 1930 through the winter of
1933, the money supply fell by nearly 30 percent. The declining supply of funds reduced average
prices by an equivalent amount. This deflation increased debt burdens; distorted economic
decision-making; reduced consumption; increased unemployment; and forced banks, firms, and
individuals into bankruptcy.

- The Federal Reserve could have prevented deflation by preventing the collapse of the banking
system or by counteracting the collapse with an expansion of the monetary base, but it failed to
do so for several reasons. The economic collapse was unforeseen and unprecedented. Decision
makers lacked effective mechanisms for determining what went wrong and lacked the authority to
take actions sufficient to cure the economy.

- But the government caused the two worst economic crises in the nation’s history and cheered on
the third: as financiers invested heavily in the 2000s housing bubble, the government encouraged
them to offer even more money to even riskier borrowers. Given those failures, the last thing we
should want is for politicians to have even more control over the American economy.
- President Herbert Hoover encouraged business leaders to take an interventionist approach to
combat the impending economic emergency because “it is action that counts.” Over the next three
years, however, Hoover worked unsuccessfully to mitigate the economic crisis of the Great
Depression. Corporate welfare promises failed. State relief efforts dissipated. Not only was the
federal government too small to handle the crisis, individuals and businesses across the political
spectrum opposed federal intervention.
- The New Deal found ways to promote consumption through regulation that lifted wages and set
prices, legislation that provided jobs and security, and Keynesian monetary policies to fight
deflation. Rather than merely focusing the New Deal around FDR’s personality, this section
draws on new studies in political economy to show the influence of interest groups and
intellectuals in shaping Roosevelt’s agenda during both the Great Depression and WWII.
- In the spirit of normalcy that defined the Republican ascendancy of the 1920s, Hoover planned to
immediately overhaul federal regulations with the intention of allowing the nation’s economy to
grow unfettered by any controls. The role of the government, he contended, should be to create a
partnership with the American people, in which the latter would rise (or fall) on their own merits
and abilities. He felt the less government intervention in their lives, the better.
- A number of factors played a role in bringing the stock market to this point and contributed to the
downward trend in the market, which continued well into the 1930s. In addition to the Federal
Reserve’s questionable policies and misguided banking practices, three primary reasons for the
 collapse of the stock market were international economic woes, poor income distribution, and the
psychology of public confidence.
- After the crash, Hoover announced that the economy was “fundamentally sound.” On the last day
of trading in 1929, the New York Stock Exchange held its annual wild and lavish party, complete
with confetti, musicians, and illegal alcohol. The U.S. Department of Labor predicted that 1930
would be “a splendid employment year.” These sentiments were not as baseless as it may seem in
hindsight. Historically, markets cycled up and down, and periods of growth were often followed
by downturns that corrected themselves. But this time, there was no market correction; rather, the
abrupt shock of the crash was followed by an even more devastating depression. Investors, along
with the general public, withdrew their money from banks by the thousands, fearing the banks
would go under. The more people pulled out their money in bank runs, the closer the banks came
to insolvency.
- The steps Hoover did ultimately take were too little, too late. He created programs for putting
people back to work and helping beleaguered local and state charities with aid. But the programs
were small in scale and highly specific as to who could benefit, and they only touched a small
percentage of those in need. As the situation worsened, the public grew increasingly unhappy
with Hoover. He left office with one of the lowest approval ratings of any president in history.
- As conditions worsened, however, Hoover eventually relaxed his opposition to federal relief and
formed the Reconstruction Finance Corporation (RFC) in 1932, in part because it was an election
year and Hoover hoped to keep his office. Although not a form of direct relief to the American
people in greatest need, the RFC was much larger in scope than any preceding effort, setting aside
$2 billion in taxpayer money to rescue banks, credit unions, and insurance companies. The goal
was to boost confidence in the nation’s financial institutions by ensuring that they were on solid
footing. This model was flawed on a number of levels. First, the program only lent money to
banks with sufficient collateral, which meant that most of the aid went to large banks. In fact, of
the first $61 million loaned, $41 million went to just three banks. Small town and rural banks got
almost nothing. Furthermore, at this time, confidence in financial institutions was not the primary
concern of most Americans. They needed food and jobs. Many had no money to put into the
banks, no matter how confident they were that the banks were safe.
- Monetary policy which is increasing or decreasing the money supply to speed up or slow down
the overall economy.
- The fed manipulate interest rates by changing the money supply. If the fed increases the money
supply, there’ll be plenty of money for banks to loan out.
- A decrease on money supply has the opposite effect. Less money supply means the banks have
less money to loan out, so they’re gonna try and get the highest interest rate possible. (so less
 money higher interest rates)
- If the central bank wants to speed up the economy they can increase the money supply which
will decrease interest rates, and lead to more borrowing and spending. (that's called expansionary
monetary policy)
- In the early years of the great depression, the fed allowed several large bank to fail, which caused
widespread panic and bank runs in other banks. The result was a third of all banks collapsed. The
banks failed because they didn’t have liquid asset,saying the banks had stocks, bonds, mortgages,
but no cash money.
- The Fed gets blamed for prolonging The Depression because it didn't give banks emergency loans,which
would've increased the liquidity in banks and the money supply in general.
-
* The Federal Reserve System is responsible for monetary policy, which means it is responsible
for managing our nation's money supply, or money stock. The Fed learned a great deal about
implementing monetary policy from the Great Depression experience and from events since then.

* If the Fed had stepped up to the plate and ensured that banks had sample reserves to meet their
customers’ withdrawal demands, the money stock would not have declined, and the economy
probably would not have sharply contracted.

Standard: CA HS SS: 11.6.2; Understand the explanations of the principal causes

of the Great Depression and the steps taken by the Federal Reserve, Congress, and
Presidents Herbert Hoover and Franklin Delano Roosevelt to combat the economic
crisis.

EQ: How much should the government regulate the economy?

Claim:

The government should have limitations on the regulation of the economy.

Based on the events that occurred before and during the Great Depression I will
show how and where the government went wrong when trying to fix the economic
recession. Examining the actions and inactions of the government during the
depression I will demonstrate why the government should have limited control of
the economy.

Evidence:

So we know the reasons why the great depression came to be based on our
last podcast, but the steps taken by the Federal Reserve, Congress, and Presidents
Herbert Hoover and Franklin Delano Roosevelt to combat the economic crisis not
so much, so let’s start explaining the actions they all took. First let’s talk about the
Federal Reserve, what actions did they take? Well for starters before the collapse
of the market the Federal had decided to raise interest rates in 1928 and 1929. The
Fed this in an attempt to limit speculation in securities markets. Because of the
international gold standard, the Fed’s actions forced foreign central banks to raise
their own interest rates. Tight-money policies tipped economies around the world
into recession. When the crash of the stock market did come the Federal Reserve
took action by having banks to deny requests for credit from member banks that
loaned funds to stock speculators. While the governor of the Federal Reserve Bank
of New York took a different approach by purchasing government securities on the
open market, advanced lending through its discount window, and lowered the
discount rate. It assured commercial banks that it would supply the reserves they
needed. These actions increased total reserves in the banking system, relaxed the
reserve constraint faced by banks in New York City, and enabled financial
institutions to remain open for business and satisfy their customers’ demands
during the crisis. The actions also kept short term interest rates from rising to
disruptive levels, which frequently occurred during financial crises. ( this ny
federal action was controversial) While New York’s actions protected commercial
banks, the stock-market crash still harmed commerce and manufacturing. In the
spring of 1931, the Federal Reserve started to grow the monetary base (which was
basically The total amount of currency held by the​non-bank public and money
held by banks as reserves) , yet the extension was deficient to counterbalance the
deflationary impacts of the banking crisis. In the spring of 1932, after Congress
provided the Federal Reserve with the necessary authority, the Federal Reserve
extended the monetary base aggressively by doing ,so that means if the interest
rates are at a low, it expands the supply of money in the economy because it's
cheaper to take out a loan which increases spending and inflation and lowers
unemployment. Many people blamed the Federal for failing to stem speculative
lending that led to the crash, and some also argued that inadequate understanding
of monetary economics kept the Federal from pursuing policies that could have
lessened the depth of the Depression.

Alright so know now you know the mistakes made from the Federal
Reserve. What about Congress when president Hoover was around, what actions
did they both take? Well President Hoover was caught off guard for the extent of
the depression crisis, and his limited response did not begin to help the millions of
Americans in need. The steps he took were very much in keeping with his
philosophy of limited government, a philosophy that many had shared with him
until the upheavals of the Great Depression made it clear that a more direct
government response was required. But Hoover was stubborn in his refusal to give
"freebees," as he saw direct government help. He called for a spirit of
volunteerism among America’s businesses, asking them to keep workers
employed, and he exhorted the American people to tighten their belts and make do
in the spirit of “rugged individualism.” While Hoover’s philosophy and his appeal
to the country were very much in keeping with his character, it was not enough to
keep the economy from plummeting further into economic chaos. Hoover also
persuaded Congress to pass a $160 million tax cut to bolster American incomes,
leading many to conclude that the president was doing all he could to stem the tide
of the panic. However, these modest steps were not enough. By late 1931, when it
became clear that the economy would not improve on its own, Hoover recognized
the need for some government intervention. He created the President’s Emergency
Committee for Employment (PECE), later renamed the President’s Organization
of Unemployment Relief (POUR). With regards to Hoover's dislike of what he
saw as handouts, this organization did not provide direct federal relief to people in
need. Instead, it helped state and private relief agencies, such as the Red Cross,
Salvation Army, YMCA, and Community Chest. Hoover also strongly urged
people of means to donate funds to help the poor, and he himself gave significant
private donations to worthy causes. But these private efforts could not alleviate the
widespread effects of poverty. Congress pushed for a more direct government
response to the hardship. In 1930–1931, it attempted to pass a $60 million bill to
provide relief to drought victims by allowing them access to food, fertilizer, and
animal feed. Hoover stood fast in his refusal to provide food, resisting any element
of direct relief. The final bill of $47 million provided for everything except food
but did not come close to adequately addressing the crisis. Again in 1931,
Congress proposed the Federal Emergency Relief Bill, which would have provided
$375 million to states to help provide food, clothing, and shelter to the homeless.
But Hoover opposed the bill, stating that it ruined the balance of power between
states and the federal government, and in February 1932, it was defeated by
fourteen votes. Alright then, so overall he was known to be sort of a greedy white
man that just didn’t at all want to help the people affected by the depression.

Correct, yes he wasn’t very popular during those times. Alright going back
to the topic so lastly it’s president Roosevelt what did he do? Well During his first
hundred days in office, Roosevelt proposed and Congress passed 15 bills. These
measures, known as the First New Deal, were a collection of multiple programs
started to end the Great Depression passed by Franklin Roosevelt. Some of these
programs included the Emergency Banking Act, AAA, NRA, PWA, TVA, SEC,
FERA, CWA, and the CCC. This New Deal succeeded in instilling hope in the
people of the United States and enacted numerous ambitious organizations (public
works) to relieve the suffering of millions of Americans and re-stimulate the
dormant economy. It gave protection to farmers and homeowners by helping them
refinance their loans and make repayments much easier. Public work schemes
benefited conservation (CCC) and helped with America's infrastructure through
the construction of roads, hospitals and schools. But the New Deal was also a
failure as it wasn’t able to effectively strengthen the United States’ economy and
drag us out of the Great Depression as unemployment rates were still continuing to
rise and New deal initiatives were being rejected by the Supreme court. The AAA
did not achieve all its aims as it was the onset of drought conditions and not
federal policies that cut wheat production, making the situation of the farmers
worse. It did little for African American farmers in the South as the last used for
growing cotton was reduced and there was little direct aid as Roosevelt did not
want to upset southern politicians and businessmen who may have obstructed New
Deal policies. While it lessened the impact of the depression on people's lives, it
did not bring recovery in either industry or agriculture and there were 22 million
people unemployed by the end of 1934. Roosevelt later created a Second New
Deal that included further help for farmers. When the depression began, only 10
percent of all farms had electricity, largely because utility companies did not find it
profitable to run electric lines to communities with small populations. To bring
farmers into the light, Congress established the Rural Electrification
Administration (REA). The REA loaned money to electric utilities to build power
lines, bringing electricity to isolated rural areas. The program was so successful
that by 1950, more than 80 percent of American farms had electricity. Overall the
second new deal was able to give 250,000 jobs in forestry and flood prevention to
those who were unemployed. It was also to be a success in the education
department where 1 million undernourished students were fed school lunches and
the unemployment rate decreased to 6.0%. As far as the success of the second new
deal was, were there any failures in it? Well yes it did have some failures in it like
the economic recovery was marginal and in fact declined between 1937 and 1939
as a second recession kicked in and unemployment rose again. Not only that but
Production levels remained below those of 1929 and did not reach the same level
until 1942 as WW2 helped increase armaments production on a massive scale.

Evidence:

The disadvantages of having the government regulate the economy are for
instance often most harmful to small businesses. The smaller the business, the
higher will be the fraction of regulatory work compared to the actual work that
leads to profits for a company. Regulations can also be costly since they have to
assure compliance with those regulatory standards. Regulatory standards increase
the costs for the government since authorities have to implement proper control
mechanisms. Opponents of regulations often also claim that the overall level of
freedom may suffer due to the introduction of strict regulatory frameworks. Our
freedom is a precious good and confining our freedom may only be justified in a
quite limited number of occasions. People may also protest against certain
regulations, especially if it is clear that those regulations will not benefit the
general public, but rather only a small interest group in the corporate sector.
Regulations are also often biased in the direction of the preferences of politicians.
For instance, if a quite conservative politician introduces a regulation, it may look
much different compared to a state where a socialist politician introduces a
regulation.

Evidence:
 Well I've already indicated to you on the disadvantages of having the
government regulate the economy however there are still advantages to having the
government regulate the economy. For instance better working conditions for
employees, in many countries there are strict regulations in place that determine
how many hours an employee is allowed to work at the maximum. Another
example would be protection of human rights where the regulations also aim to
protect all kinds of human rights to assure a minimum level of education for each
of us so that as many people as possible get a fair chance to succeed in life.
Avoidance of business monopolies would be considered to be an advantage of the
government regulation since it’s only if companies get too big, in which they can
often have far too much market power and can dictate the prices in the respective
industry, which is quite harmful to customers since prices tend to increase due to
the formation of monopolies. Another advantage of government regulation is that
they can guarantee the assessment income for the particular country. For instance,
without tax regulations, companies and also private persons would not pay taxes at
all since they would simply not be forced to do so. However, without tax income,
essential foundation projects couldn't be completed, which would fundamentally
hurt the overall population. Another potential gain of regulations is that they can
likewise furnish the least fortunate among us with a base degree of federal
retirement aide. For example, in numerous nations, if an individual becomes
jobless, the public authority will furnish this individual with cash so the person in
question will actually want to pay their lease as opposed to getting destitute.
Lastly, the rules and regulations authorities put in place play a crucial role for the
local economy. In the event that there are complex guidelines set up, firms might
have the option to productively work and make high benefits. Be that as it may,
companies may no longer be able to survive in a fierce global market and may
therefore be forced to go out of business at one point in time. Overall there are still
advantages to having the government regulate the economy.
 Reasoning Statement:

Based on the evidence, I must conclude that the government should have
limitations on the regulation of the economy regarding the actions that the
government took during a period of an economic crisis. That had its downfalls and
improvements of how the government should regulate the economy from its past
fatal mistakes and how it shouldn’t. Overall we were able to know the outcome of
what and how having the government regulate the economy affects us. The great
depression didn’t prove that the financial system needs regulation to ensure its
stability, instead it reveals just how unstable the financial system can become
when the government has fully intervened.

Sources:

https://ari.aynrand.org/the-great-depression-and-the-role-of-governmen
t-intervention/

https://www.federalreservehistory.org/essays/great-depression

https://www.mdpolicy.org/research/detail/how-government-caused-the-g
reat-depression
https://www.economicshelp.org/blog/151818/economics/pros-and-cons-of-
government-intervention/

https://environmental-conscience.com/government-regulation-pros-cons/

https://millercenter.org/the-presidency/teacher-resources/recasting-pre
sidential-history/president-and-economy-during-great-depression

https://courses.lumenlearning.com/atd-fscj-ushistory2/chapter/brother-
can-you-spare-a-dime-the-great-depression/